Can You Buy a House Before Your Divorce Is Final?
Can you buy a house before the divorce is final? That is a loaded question. It’s not just yes or no. There are several components that may need to be satisfied.
1. Mortgage Requirements
Getting pre-approved for a mortgage is essential, and knowing your spending power outside of the marriage is crucial. The division of assets will need to be determined.
Having a court order that is finalized and signed by a judge will tell the lender who’s responsible for what in the divorce. It will also help your qualifying DTI (debt-to-income ratio). Mortgage underwriting has rules that affect what income a lender can consider, such as the length of the child or spousal support. The decisions laid out in the agreement can help or hurt you in determining how much home you can afford. If you are responsible for payments on an existing property such as the marital home, it will be included in your DTI. Working with a certified divorce lending professional can help maneuver through these transactions.
If you are getting a government-backed loan (FHA, USDA, VA), your spouse’s debts are included in your DTI. However, their credit score isn’t counted against you for qualification purposes. This also does not apply to conventional loans.
If you are a two-income family that is dropping to a single-income earner, you might reduce your purchasing power for a home. Newly single women are often affected more severely by this than men because women still do not earn an income on par with men.
2. Deed Requirements
If you buy a house, the new home may be required to have both party’s names on the deed depending on state requirements, since technically you are still married. This may cause a problem for the party trying to purchase before the divorce is final. The marital home may be in both party’s names which can also hurt your DTI. A quitclaim deed may need to be completed to transfer full ownership to the other party after the divorce is final. Working with a certified divorce real estate agent and a divorce attorney can help maneuver through this complex process.
Community property states view all assets acquired during a marriage as belonging to both spouses. A quitclaim deed removes any required interest in the home. Even in non-community property states, the purchase of a new home in the middle of a divorce might be considered a marital asset.
3. Attorney and Court
When you buy a house it is considered an asset, while obtaining a mortgage is a debt. How will the new home be paid for? Will marital assets be used for the down payment, closing costs, or as proof of funds?
If the home is purchased during a divorce and the opposing party does not sign away their right to ownership, the court may view it as an asset during the divorce. Additionally, such a large investment may also affect the way the court splits assets and debt. This can drastically decrease the amount awarded to you and impact your financial future. Speaking with a divorce lawyer or a certified divorce financial planner will help ensure you do not get into any legal complications.
People sometimes believe that if they use cash to buy a house it won’t look like they used marital assets. This is not true. Cash accumulated during a marriage still counts as marital assets.
Buying a home during a divorce is possible; however, both spouses need to cooperate. It will require preparation and working with the right professionals.
To contact Rozalyn Franklin: Tel: 803-318-6412 Email: Rozalynfranklin@kw.com
Rozalyn Franklin is a pre-foreclosure specialist where she guides her clients through short sales helping them get back on their feet. Her 20 years of experience in the industry helping divorcing couples with their real estate needs has proven that having an informed real estate professional on their side often prevents the short sale and can protect their credit. Roz believes it is critical for people going through divorce to be well-informed about their real estate options and consequences. Having a team of professionals to help them during this life-altering process is a blessing.
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